Re: City & FFP (continued)
City's problem is that it's been (had to be) creative with some of its accounting... and that leads to the inevitable questions:-
Which items are 'creative' in order to circumvent / avoid FFP sanctions, and which are genuine creative new ways of making money?
Because of our profile, plenty of people will believe EVERYTHING is the former, and none is the latter, but few would ever believe it's all the latter.
And for the creative circumvention parts, people will still choose to see that as underhanded and 'bad' rather than a genuine attempt to interpret the rules in our favour. Essentially FFP 'avoidance' rather than 'evasion'. That's a very important distinction which should not be underestimated.
As things have panned out, we'll fallen a little shy of the FFP requirements and been duly punished. The reasons why we fell just shy are another debate entirely, but don't change the outcome.
So...
There are no rules that stop related party transactions - they happen all the time. The issue is that they are far more likely to be examples of creative accounting, and thus suffer more scrutiny/checks/balances. For instance, if MacDonalds decide to sponsor City, that's likely to be seen as a genuine 'free market' sponsorship, but if Bluemoon Burgers sponsor City - it becomes a related party transaction and UEFA try to assess if it's a deal that could just as easily have happened with an unrelated company. The chances are, they are going to take a fairly restrictive view of such transactions. They can't easily ban them, but they can argue they aren't worth as much as we say they are.
Therefore, when we come to related party transactions, they can't (easily) be used to funnel money into the club in a blatant manner that EVADES FFP regulations. We CAN still use our related parties to exchange services and goods in a manner that we might expect to see in the open market anyway, but instead of transacting with non-related parties, we transact with related ones instead, in order to benefit from the relationship.
In absolutely layman's terms:
I'm a plumber in England (Manchester City), my brother is a plumber in USA (New York City)
I CAN -
1) obtain some cheap plumbing gear from my brother in the USA, thus paying less than I might normally, but only at a price that's clearly available in the USA.
2) sell him some English goods, which he would otherwise have to pay more for in the USA.
3) teach him about how English plumbing techniques, and keep a lookout for any new English innovations (Scouting for plumbers!) and charge him for it (but I can only charge what another firm would reasonably charge)
4) pay for him to teach me about American plumbing techniques and keep a look out for new American innovations, but I can only pay him what I might expect to pay anybody else to do that.
5) let him use my logo (for a fee), because I own the design, and the Americans like 'Olde English Plumbing' type brands, and mine is well known. But I can only charge him an amount I might otherwise be able to get from another company.
6) make a profit on my transactions with my brother (but not over and above what I might have made with any other company, plus gaining from the 'benefit' of being related, which should see a reasonable benefit, nothing more).
I CANNOT-
1) get him to buy £100.00 quid's worth of plumbing gear and sell it to me for £1.00. That is not what any normal business would do, and it would be a clear attempt to reduce our costs, by using our related party to take the hit for us!.
2) buy a £1.00 washer in the UK, then sell it to my brother in the USA for £100.00, That is not the sort of profit a normal business would make on a sale, and would be a clear funnel money into the club with artificial profits.
3) claim to have sold him knowledge or services (or bought them) when they didn't really exist. That's simply lying.
4) invent new 'implausible' services which DO actually exist, but have no real value, and yet are sold (or bought) for profit
5) sell (or license) logos to him, for more than they are really worth.
These 'implausible' services, and 'more than they are really worth' is where related party transactions are ALWAYS going to be judged harshly. And in fairness to UEFA, it's right to look at them with scepticism.
A good rule of thumb will be that IF a club creates a truly new and innovate revenue stream, for whatever 'oddball' service it's providing, it's going to have to prove it works in the open market first, then move it to a related party to gain the benefit of being related. Otherwise, it simply can't demonstrate what a typical market value would be.
There is ONE obvious workaround to all of this, and I have no idea how UEFA stop (or attempt to stop) it:
1) A club has an owner who also owns a very profitable computer firm.
2) His computer firm offer to supply new computers to every Coca Coca office as long as Coca Cola agree to sponsor his Football Club.
This is a triangular transaction.
As far as UEFA see - Coca Cola and the club are unrelated parties. And whilst they seem to be paying over the odds for their sponsorship, it must be 'fair market value'
UEFA have NO jurisdiction over Coca Cola or the owner's computer business, both of which reside outside of Europe, and have an NDA in place for any business agreements they've entered into.
The example is just 3 companies, but it can become a chain of 'deals' that UEFA have no hope of finding, and some may as simple as a verbal 'understanding' between good 'friends' who happen to be owners of some very large companies, all sat around a bar in an exclusive gentleman's club.
